Brexit impact is ‘manageable’ for EU

The economic impact of Britain leaving the EU will be “manageable” for the German and EU economies even though some economic sectors will be more seriously affected, according to a study commissioned by the German economics ministry.

“Even under unfavorable conditions, Brexit will be manageable for the EU and German economies,” said Germany’s economics minister, Brigitte Zypries. “That is partly due to the current good economic environment.”

Many in Britain have suggested that the possibility of EU economies taking a serious hit from Brexit will incentivise the bloc to give London generous market access after its departure.

In Britain, meanwhile, sterling held below seven-month highs against the dollar, unmoved by stronger-than-expected UK construction sector data, as investors kept an eye out for polls on the country’s general election due in less than a week.

British construction activity grew at its fastest rate since the end of 2015 last month, according to the Markit/CIPS construction purchasing managers’ index (PMI), which jumped to 56.0 from 53.1, its highest since December 2015 and above all forecasts. However, sterling shrugged off the data, partly reflecting the small size of the construction sector — about 6% of Britain’s economy — and a larger focus on the country’s upcoming general election. At one stage, the pound was down 0.2% at $1.2860. In mid-May, it hit its highest level since September at $1.3048. Against the euro, sterling was 0.3% lower at 87.25p.

“Anticipation of perhaps a better than expected release [in services] on Monday could offer the pound some additional support,” said Alexandra Russell-Oliver, currency analyst at Caxton FX, referring to Britain’s dominant services sector for which May’s PMIs are due next week.

“Broadly speaking, the key focus is still on politics and the election,” she said.

The pound has recently been choppy, with investors unsure if UK prime minister Theresa May will secure a large majority next week in the face of polls predicting a range of outcomes — from a slim majority for her Conservatives to a hung parliament.

Nevertheless, the currency has held onto its gains since Ms May announced the vote in mid-April, as the polls still show her Conservatives winning despite the Labour Party narrowing down her lead.

Reuters

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